What happens when two giant enterprise software vendors face fundamental threats from cloud computing and third party maintenance? A lot of sniping happens, as SAP and Oracle vie for customers and seek to preserve their core cash cows.
The two most recent earnings conference calls with Oracle and SAP featured a heavy dose of smack talk that doesn't quite add up. The only common thread between SAP and Oracle right now is that both companies knock Workday every other minute. If mentions from competitors were compliments, Workday execs must be feeling pretty good.
It's also unclear what to make of the numbers from both SAP and Oracle. SAP talked about HANA, but analysts note that growth from HANA is slowing and probably means slower core license growth. SAP and Oracle face threats with maintenance and support revenue as third party maintenance from the likes of Rimini Street hit an inflection point.
Other analysts such as Jefferies' Ross MacMillan are cheering the fact that SAP's second quarter was "not great but no disaster either." SAP missed second quarter expectations with earnings of EUR0.73 on revenue of EUR4.09 billion. On a constant currency basis, SAP's license and revenue tally fell short of expectations.
Dennis Howlett noted that SAP's core ERP business is showing weakness. Others agree. Cowen & Co. analyst Peter Goldmacher said in a research note:
Customers are delaying legacy ERP spend and aggressively evaluating alternatives. While third-party maintenance is still very small, growth rates are inflecting. This pressures support renewals, the lifeblood of the earnings model.
Overall, SAP may be better positioned for now because cloud computing hasn't come to manufacturing just yet and the company's database business is small. But the jabs between Oracle and SAP just make figuring out the real health of these key vendors a bit more difficult for tech buyers. Every conference call, Oracle and SAP call BS on the other one.
Here are some choice excerpts to ponder in the enterprise software reality distortion field:
SAP co-CEO Bill McDermott said Thursday on the company's earnings conference call:
We're winning because we have the right Cloud strategy. SAP is the only company with a consistent portfolio offering true simplicity in the Cloud. In response, the competition is teaming up with multiple Cloud partnerships and creating patchwork solutions which result in increased complexity for customers.
For example, our most notable competitor has chosen to outsource their Cloud innovation.
In contrast, SAP decided to innovate in the Cloud and offer our customers maximum choice and security in the Cloud. Customers can choose SAP public Cloud for a line of business solutions, or a secure private Cloud for core enterprise solutions. And even more importantly, customers can seamlessly integrate any SAP Cloud solution with their existing On Premise IT landscape. We call this innovation without disruption in the Cloud.
Reality: Both SAP and Oracle acquired their way into the cloud.
Oracle CEO Larry Ellison said last month:
Some of SAP's largest customers, giant German industrial companies, bought Exadata, not HANA, to run their SAP application. We virtually never see HANA in the market. And SAP's HANA numbers simply don't add up. Their recent analyst report pointed out that if you believe the HANA sales growth numbers in SAP's most recent quarterly report, then SAP's application business must have declined 10%. You decide. Either HANA is doing well and SAP's application business is in steep decline, or Hana's not doing so well but SAP's application business is okay. You can't have it both ways. We don't think SAP's HANA can ever successfully compete with Oracle's Exadata and our other engineered systems in the high performance database market. Engineered systems are now over one-third of Oracle's hardware revenue.
Werner Brandt, SAP's CFO, called BS on Ellison:
We also of course heard that there's a comment made in the conference call from Oracle, and I quote here. Some of SAP's largest customers, German industrial companies, bought Exadata and not HANA, like Siemens. And I talked to Siemens personally and this statement is simply incorrect. I talked to my counterpart at Siemens, Joe Kaeser, and he gave me the permission to say that Siemens had invested significantly in SAP HANA and is using our database. And he stated that there obviously was an error on Oracle's side that Siemens does not use HANA. And if you want to talk to Siemens, call their communication department, because he wanted to give this also back to them so that they can answer any question which might still be open, left open.
Reality: Oracle did cite Siemens as a Exa-customer in the call, but the HANA reference just implied Siemens bought Exadata over HANA.
McDermott also chimed in on Ellison's quip that Oracle never sees HANA in the field.
Maybe I could just take a start at it, why Oracle might not see us in the marketplace. They may be spending too much time in internal meetings because we're out there. And I can tell you that their customers know we're there, and our customers certainly know we're there. In fact, one of the really well known companies in our industry has a CEO that said something to me day before yesterday that I felt was quite striking. He said that HANA without question will be the de facto standard platform for in-memory computing and business analytics in the world. So I think most people know we're around.
Mark Hurd, president of Oracle, noted that the company can easily sell modules that just fit right into a cloud model. Hurd said:
Because of the way our software is architected, we can sell by module. So in many ways, it opens up brand new markets to us. We can go sell to an SAP customer a module of HCM. They can buy recruiting from us. They don't have to, quote-unquote, rip and replace. Somebody like a Workday has to do a lot more rip and replace than we would. We can go in, supplement many of our application users today, with their core on-premise app, with new modules of our SaaS Fusion application.
And we're winning because we have the right Cloud strategy. SAP is the only company with a consistent portfolio offering true simplicity in the cloud. In response, the competition is teaming up with multiple cloud partnerships and creating patchwork solutions which result in increased complexity for customers.
Reality: When companies that sell complex software start yapping about simplicity, it's time to run.
At least SAP and Oracle agree on one thing: Workday.
McDermott had two mentions of Workday:
Our rapid growth is impacting competitors like Workday as well, who have seen deceleration in their bookings growth from triple-digit growth over a year back to around 30% in their latest quarter. We now have reached an annual Cloud revenue run rate of over EUR930 million, and with approximately 30 million users in the Cloud, SAP has the largest subscriber base in the Cloud market.
For example, the Weather Channel, the most popular source of weather news and information in the US, has chosen SAP SuccessFactors Enterprise bundle and employee central over Workday, supporting the transformation of human resources to significantly reduce day to day administration of employees, and becoming a strategic partner in the Company to management.
Oracle also mentioned Workday twice:
Not only are we bigger than Workday in HCM, but we are growing faster than Workday. They recently claim to have added 50 new customers in HCM and ERP. We added more than 50 in HCM alone. And with more than 80 new Fusion SaaS customers, we had great SaaS HCM wins at British Telecom, BMC Software, Siemens, Credit Agricole, Yahoo and Intuit.
Take out Taleo, don't count it. Just look at Fusion HCM. Look at our Fusion HCM customers. We added more new Fusion core HCM customers last quarter than Workday added their HCM plus ERP customers. That's with Fusion, not Taleo. We're growing very fast in the cloud, and especially the HCM cloud. Especially Fusion HCM. And as Mark pointed out, we're larger in SaaS than anyone but Salesforce.com. We're larger than Workday and SAP combined.
Reality: Both Oracle and SAP are worried about Workday. The former may be obsessing a bit and the latter isn't too far behind. As for the battle of the run cloud run rates, Oracle claims that it's over a $1 billion run rate. SAP claims a cloud run rate of EUR930 million, which equates to $1.21 billion. We'll call it a tie for giggles. Workday is estimated to have $439 million in fiscal 2014 revenue. If Oracle were really larger than SAP and Workday combined on the run rate front, execs would be more specific and note a run rate of $1.7 billion give or take a few million.